The Federal Reserve has been lifting the nominal fed funds target rate since December 2015.

It currently rests between 1.50% and 1.75%.

That is, nominal rates remain low.

Now crane your neck? and glance rearward to the disco-filled days of 1979…

Nominal interest rates averaged a Himalayan 12.5% or thereabouts.

That is, the nominal interest rate was some 8.5 times higher in 1979.

But could it be that today's puny 1.50?1.75% rate? is ?really? higher than 1979's 12.5%?

A preposterous question, you thunder.

But come sit down before the facts?

The real interest rate is the nominal interest rate minus the inflation rate.

Assume the nominal interest rate is 3%, for example.

Further assume that inflation runs at 1%.

In this instance, the real rate is 2% (3 ? 1 = 2).

There is a reason why it is called the real interest rate.

It penetrates numerical mists. It scatters statistical fogs.

It clarifies.

Nominal interest rates averaged 12.5% in 1979.

Inflation ran to 13.3%.

So let us apply some English major math to arrive at the real interest rate in 1979?

We take 1979's average nominal interest rate (12.5%) and subtract the inflation rate (13.3%).

We then come to the arresting conclusion that the real interest rate was not 12.5%? but negative 0.8% (12.5 ? 13.3 = -0.8).

Once again:

The average nominal interest rate was 12.5%.

But the real interest rate was -0.8%.

We can only conclude that real interest rates can be negative despite a high nominal rate.

As Jim Rickards explains:

Negative real rates exist when the rate of inflation is higher than the nominal interest rate. This condition can exist at any level of nominal rates. For example, inflation of 3% with nominal rates of 2.5% produces a negative real rate of 0.5%.

Likewise, inflation of 4% with nominal rates of 3.5% produces the same negative real rate of 0.5%.

Now roll the film forward to today?

Today's nominal rate is between 1.50% and 1.75%.

Meantime, (official) consumer price inflation goes at about 2%.

Again, if we want the real rate, we must subtract inflation from the nominal rate.

What do we find upon doing so?

We find that today's real interest rate lies somewhere between -0.5% and -0.25%.